The Central Bank of Nigeria (CBN) is set to roll out a comprehensive framework that would discourage the current unlimited appetite by commercial lenders for government securities to encourage increased credit flow to the poorly served productive sectors of the economy.
CBN governor, Godwin Emefiele announced this on Tuesday as he announced the apex bank’s decision to hold all benchmark lending parameters, including the Monetary Policy Rate (MPR) at 13.5 percent; Cash Reserve Ratio (CRR) at 22.5 percent; Liquidity Ratio at 30 percent as well as asymmetric corridor of +200/-500 basis point around the MPR.
Responding to questions at the press meeting, Emefiele admitted that the MPC was signaling to the banks against the growing appetitie for government securities which continues to crowd out the much needed private sector seen as the engine of growth.
“The truth is that according to our own regulation, there is a particular minimum percentage of government securities that the banks must invest in order to remain liquid but again, we have observed unfortunately increasingly that banks rather than focusing on granting credit to the private sector tend to direct their focus mainly in buying government securities,” Emefiele explained.
“The monetary Policy Committee has frowned at that, and has directed the management of the bank to put in place policies or regulations that will restrict the banks from unlimited access to government securities.”
The decision taken after the two days meeting of the MPC in Abuja comes at a time when the apex bank appears to be in a dilemma of an inflation uptick and a slow, fragile economic growth.
According to figures from the National Bureau of Statistics, while inflation rose for the first time in 2019 to 11.37 percent in April from 11.25 percent in March, first quarter GDP was reported at 2.01 percent, lower than the previous quarter numbers.
“It is important and expedient that we do this because this country badly needs growth and for us to achieve growth, those whose primary responsibility it is to provide credit, who act at intermediaries in providing credit and are called catalysts to economic growth must be seen to perform that responsibility.
“That they direct their liquidity to other channels other than channeling to the economy is what the MPC frowns at and has given the management the power to work out ways of limiting their appetite for government securities other than the private sector.
“CBN managementwill certainty take this up,” he stressed.
He however admitted that banks have always resisted creating credit to the private sector for fear of past experience with bad loans, and therefore the MPC has directed the management to think out what they called “an administrative, legal, regulatory frame work” to ensure that some of the credit risks that are associated with granting loans to the private sector which ultimately results in NPLs should be mitigated.”
Banks Non Performing Loans (NPLs) today stands averagely at 9-10 percent still higher than the 5 percent treshold but lower than the 15 percent recorded a year or two ago.
Emefiele also noted the MPC concerns that the consumer and credit market are not being catalysed, which he said was one of the inhibiting factors to growth.
He assured that the CBN would work out modalities to assist banks ensure consumer credit improves.
“We will aggressively pursue this, we will hold important and strategic discussions with Deposit Money Banks and make them understand the need to play this role as expected of them.